Most tax deals die, workers comp overhaul lives

SACRAMENTO  State lawmakers rejected many — but not all — proposed tax and fee increases as they worked into early Saturday morning to wrap up the session for the year.

The Legislature failed to repeal a controversial fire fee on rural residents, blocked a corporate tax hike to pay for middle-class college scholarships and rejected a mandatory mattress recycling program that could have added up to $8 to the price of new beds.

But lawmakers did approve a 1 percent tax on wood products, hiked boat registration fees to fight the invasive quagga mussel, and delivered a $100 million annual tax break to keep TV and film production in California.

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Early in the day Friday, lawmakers passed sweeping changes to state and local government pension systems that will save money but reduce benefits for mostly new employees. Late at night, they approved another blockbuster deal with bipartisan support: revamping the state workers compensation insurance program

The changes were sought by some business groups concerned about escalating insurance costs and labor unions that have been working for years to regain benefits that were eroded in a 2004 overhaul of the $16 billion system.

The bill makes substantial reforms to the century-old system that provides medical care and compensation to workers who injure themselves or fall ill on the job.

It changes how benefits are calculated for injured workers, creates a binding arbitration process to resolve coverage disputes and eliminates coverage for conditions that most commonly lead to lawsuits, including insomnia and mental health problems.

Supporters said the reforms will increase compensation for disabled workers by $700 million a year, boosting benefits by an average of 30 percent for individual disabled workers. The annual savings that could result from the reforms are in dispute. Estimates range from $1 billion to less than one-tenth of that.

The rising costs associated with worker claims could force insurers to hike premiums by more than 10 percent next year, according to some estimates.

That bill — and hundreds of others — are now before Gov. Jerry Brown, who has until the end of the month to act.

It was a night of nail-biting to beat the midnight constitutional deadline to act on most bills. There were also intense negotiations involving outgoing San Diego lawmakers Nathan Fletcher, a Republican turned independent, and Sen. Christine Kehoe, a Democrat.

Fletcher’s role came in talks over legislation to close a loophole that allows some out-of-state companies to pay lower taxes. The revenues initially were earmarked to lower the cost of college for middle-class students.

To woo Republican votes in the Senate, Fletcher and Assembly Speaker John Perez, D-Los Angeles, tried to package the tax hike in Assembly Bill 1500 with other trade-offs.

One of those first dangled was a repeal of the $150 per year fire fee on some 825,000 rural residents who count on Cal Fire to defend their property. The new revenues would have gone to backfill the $80 million Cal Fire would have lost if the fee had been stricken.

“It was incredibly frustrating to see California’s elected officials side with out-of-state companies at the expense of their own constituents,” said Fletcher, who ran for San Diego mayor but lost in the June primary.

Fletcher said ending the tax break would have made the system more fair for California corporations that must compete with those companies that pay lower taxes. Qualcomm and other in-state business interests supported closing the loophole.

As Friday night wore on, negotiators studied a number of proposals to divide up the potential revenue, even considering restarting the Healthy Families program for children that has been folded into Medi-Cal to save money.

“What we weren’t willing to do was carve out an exemption for the tobacco industry,” Fletcher said. Powerful cigarette makers had offered to lobby Republicans for the bill as long as they were not subject to paying higher taxes.

“I am not picking on tobacco because their product kills people. I am picking on tobacco because they don’t employ Californians,” Fletcher said.

Republicans stood fast, even under pressure form the Regional Council of Rural Counties that has asked them to consider all options, including taxes, to help erase the fire fee. About 66,000 San Diego County residents will see their first bills in mailboxes this fall.

Republican lawmakers from San Diego County branded the deal “extortion” and expressed confidence that a court will quickly find the fee unconstitutional because it was not passed with a two-thirds majority.

Meanwhile, Kehoe was trying to save her separate Senate Bill 1455 to extend some car registration taxes of about $6 and a 75-cent surcharge on tire purchases. That money funds alternative fuels and clean air programs but are due to expire in the next three years.

The last desperation roll call — the sixth or so within the space of three minutes — failed when the Senate chamber clock looming over the dais clicked to 12:00 with her bill still two votes short.

It was a different outcome for the industry-supported timber fee. Because it was ruled an urgent tax, the midnight deadline didn’t apply. Still, the Assembly was shutting down and the bill had failed once. Suddenly, about 20 minutes after 1 a.m., the bill reappeared to pick up the needed supermajority. The adjournment gavel fell minutes later.

The 1 percent extra on wood products would raise about $30 million annually to help pay for programs to regulate the industry, including environmental reviews required before companies can start logging.

Another key bill sent to the governor gives businesses more protection from frivolous lawsuits linked to the Americans with Disabilities Act.